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On June 5, 2020, President Trump signed into law the latest COVID-19 relief-related legislation: the Paycheck Protection Program Flexibility Act (the “Act”). As stated in the title of the Act, the purpose of this legislation is to provide the recipients of PPP loans greater flexibility in the use of loan funds, while maintaining eligibility for loan forgiveness.

The key provisions of the Act include:

  • The Act extends the period of availability of PPP loans to December 31, 2020
     
  • The Act extends the PPP loan usage period from 8 to 24 weeks from the loan disbursement date
     
  • The Act lowers the threshold percentage amount of loan proceeds that must be used for payroll expenses from 75% to 60%
     
  • The Act extends the loan repayment period from 2 to 5 years
     
  • The Act allows a payroll tax deferral for PPP loan recipients
     
  • The Act extends the rehiring deadline from June 30, 2020 to December 31, 2020
     
  • With the first PPP loan recipients nearing the end of their eight-week covered period to use the funds, the Act provides welcome flexibility and discretion to all recipients. Small businesses that received PPP loans prior to the Act becoming law may still elect an eight week covered period. This may be helpful to those small businesses that were originally counting on the eight-week period and spent their funds accordingly.

Prior to the passage of the Act, PPP loan recipients were required to spend at least 75% of their loan proceeds on salary and wages for employees. This has been lowered to 60%, which will benefit small businesses with fewer employees but with higher overhead costs (such as mortgage interest, rent, or utilities). Under the Act, the safe harbor period for rehiring employees has been extended from June 30, 2020 to December 31, 2020. Similarly, the Act provides that the loan forgiveness reduction will not apply to PPP loan recipients who can demonstrate, in good faith, their inability to rehire the same or similar employees that were employed on February 15, 2020, or their inability to return to the same level of business as before February 15, 2020 because of COVID-19 related concerns or certain government orders.

The Act also extends the loan repayment term from two years to five years for new PPP loans. Small businesses that received PPP loans before the passage of the Act may work with their lenders to extend the repayment term. The Act also amended the loan payment deferral period. Under the CARES Act, payments on principal, interest, and fees were deferred for at least six months, and no longer than one year. The Act modified this provision and now allows for deferral of all loan payments until the value of the loan forgiveness has been determined by the Small Business Administration. Lastly, the Act allows PPP loan recipients to defer the employer’s portion of payroll taxes until December 2020 and December 2021 even if they receive loan forgiveness.

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